REGULATORY IMPACT STATEMENT

Transcription

1 REPORT TO DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES 17 NOVEMBER 2015 REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT

2 ACIL ALLEN CONSULTING PTY LTD ABN WAKEFIELD STREET ADELAIDE SA 5000 AUSTRALIA T LEVEL FIFTEEN 127 CREEK STREET BRISBANE QLD 4000 AUSTRALIA T F LEVEL TWO 33 AINSLIE PLACE CANBERRA ACT 2600 AUSTRALIA T F LEVEL NINE 60 COLLINS STREET MELBOURNE VIC 3000 AUSTRALIA T F LEVEL ONE 50 PITT STREET SYDNEY NSW 2000 AUSTRALIA T F LEVEL TWELVE, BGC CENTRE 28 THE ESPLANADE PERTH WA 6000 AUSTRALIA T F ACIL ALLEN CONSULTING 2015

3 C o n t e n t s 1 Introduction 1 2 Background Electricity distribution system Powerline faults Powerlines may start bushfires Consequences of bushfires vary across the state Reducing the likelihood that powerlines start bushfires Technology options to further reduce the likelihood that powerlines start bushfires Putting powerlines underground Insulating overhead powerlines Installing new generation REFCLs to protect polyphase lines Installing new generation ACRs on SWER powerlines Approaches to bushfire risk reduction Regulatory regime that applies to electricity distributors Economic regulation Safety regulation 17 3 Nature and extent of the problem Bushfire ignition The Black Saturday bushfires Powerline Bushfire Safety Taskforce Powerline Bushfire Safety Program Response by the electricity distributors Further action required to reduce the likelihood that powerlines start bushfires Costs related to bushfires Incidence of bushfires Costs associated with the Black Saturday bushfires Expected cost of bushfires Cost of fires due to electricity assets Market and regulatory failures Public good Regulated natural monopolies Reduction in public risk 42 ii

4 4 Objective of the proposed regulations 46 5 Options to achieve the objective Base case Identification of options Option 1: Amend the regulations to enhance the network protection for polyphase powerlines Option 2: Amend the regulations to enhance the network protection for SWER powerlines Option 3: Amend the regulations to require powerlines in declared areas to be put underground or insulated Option 4: Amend the regulations to put powerlines underground Option 5: Amend the regulations to insulate powerlines Option 6: Strengthen the service incentive scheme Option 7: Strengthen the F-factor scheme Preliminary assessment of options Option 1: Amend the regulations to enhance the network protection for polyphase powerlines Option 2: Amend the regulations to enhance the network protection for SWER powerlines Option 3: Amend the regulations to require powerlines in declared areas to be put underground or insulated Option 4: Amend the regulations to put powerlines underground Option 5: Amend the regulations to insulate powerlines Option 6: Strengthen the service incentive scheme Option 7: Strengthen the F-factor scheme Options for further consideration 63 6 Assessment of the options Data sources Electricity distributor data request Reduction in bushfire fire risk Analysis of costs and benefits enhancing network protection for polyphase powerlines (option 1) Analysis of costs enhancing network protection for polyphase powerlines (option 1) Analysis of benefits enhancing network protection for polyphase powerlines (option 1) Net benefits enhancing network protection for polyphase powerlines (option 1) 84 iii

5 6.3 Analysis of costs and benefits enhance network protection for SWER powerlines (option 2) Analysis of costs enhance network protection for SWER powerlines (option 2) Analysis of benefits enhance network protection for SWER powerlines (option 2) Net benefits enhance network protection for SWER powerlines (option 2) Require powerlines in declared areas to be put underground or insulated (option 3) Analysis of costs require powerlines in declared areas to be put underground or insulated (option 3) Analysis of benefits require powerlines in declared areas to be put underground or insulated (option 3) Net benefits require powerlines in declared areas to be put underground or insulated (option 3) Preferred option Preferred option enhance network protection for polyphase powerlines (option 1) Preferred option enhance network protection for SWER powerlines (option 2) Preferred option require powerlines in declared areas to be put underground or insulated (option 3) Implementation plan Evaluation strategy Key evaluation questions To what extent have the regulations reduced the likelihood of powerlines starting bushfires? How successfully have costs to consumers been constrained? Maximise reliability improvements Evaluation audiences Evaluation strategy summary Consultation undertaken 117 Appendix A Prescribed particulars for Bushfire Mitigation Plans A-1 Appendix B Definition of the highest consequence bushfire risk areas B-1 Appendix C Proposed regulations C-1 iv

6 Appendix D Feeders to be replaced under option 3d D-1 List of boxes Box 1 Findings from the Department s research program with a REFCL 27 List of figures Figure 1 Examples of polyphase distribution powerline (on the left) and SWER line (on the right) 5 Figure 2 Electricity distribution areas 6 Figure 3 Fire loss consequence map 9 Figure 4 Threat-barrier diagram for the ignition of bushfires 14 Figure 5 Example of a REFCL, installed at Kilmore South ZSS, May Figure 6 Figure 7 Figure 8 Figure 9 Figure 10 Bushfire risk reduction for a powerline supplied by a ZSS with a REFCL installed 30 Comparison of capital costs and cost per life saved by putting polyphase powerlines underground and installing REFCLs in the highest consequence bushfire risk areas 58 Comparison of capital costs and cost per life saved by putting SWER powerlines underground and installing new generation SWER ACRs 59 Comparison of capital costs and cost per life saved by insulating polyphase overhead powerlines and installing REFCLs in the highest consequence bushfire risk areas 60 Comparison of capital costs and cost per life saved by insulating SWER overhead powerlines and installing new generation ACRs 61 Figure 11 Contribution of REFCLs to a reduction in the state s bushfire risk 76 Figure 12 Figure 13 List of tables Table 1 Estimated net incremental benefits of the scenarios to enhance network protection for polyphase powerlines 85 Estimated incremental costs and benefits of the scenarios to enhance network protection for polyphase powerlines 86 Length of polyphase powerlines and SWER lines in Victoria (excluding CitiPower s area) as at September Table 2 Applicability of technology options to polyphase and SWER lines 11 Table 3 Unit capital cost to put powerlines underground 11 Table 4 Unit capital cost to insulate overhead powerlines 12 Table 5 Implementation of the Royal Commission s recommendations 21 Table 6 Quantifying the Taskforce s recommendation 24 Table 7 Costs for replacing powerlines under the Powerline Replacement Fund 31 Table 8 Incidence and consequences of major fires in Victoria summary statistics 34 Table 9 Estimated major economic costs of Victoria s January February 2009 bushfires, by cost item 35 Table 10 Overview of options 50 Table 11 Potential bushfire risk reduction associated with the installation of REFCLs 52 Table 12 Options to reduce fault current and voltage 53 Table 13 Preliminary assessment outcomes 56 v

7 Table 14 Variation in the estimated cost of a REFCL 69 Table 15 Estimated total cost of installing REFCL, including ancillary equipment 70 Table 16 REFCL installation schedule 71 Table 17 Phasing of costs for installing the REFCL and ancillary equipment 71 Table 18 Additional maintenance costs estimated to be incurred following the installation of a REFCL 72 Table 19 Estimated costs for amending the Bushfire Mitigation Plans 73 Table 20 Table 21 Estimated present value of costs associated with installing a REFCL for those ZSSs not in the base case 74 Estimated present value of benefits associated with an improvement in bushfire risk with the installation of a REFCL for those ZSSs not in the base case 78 Table 22 Value of customer reliability 79 Table 23 Table 24 Table 25 Table 26 Table 27 Table 28 Table 29 Table 30 Table 31 Table 32 Table 33 Estimated present value of benefits associated with a reduction in the minutes off supply and a reduction in the number of momentary interruptions with the installation of a REFCL for those ZSSs not in the base case 83 Estimated present value of the net benefits with the installation of a REFCL for those ZSSs not in the base case 84 Estimated net incremental benefits of the scenarios to enhance network protection for polyphase powerlines 85 Estimated cost (undiscounted) for a one per cent reduction in the state s bushfire loss consequence 86 Estimated present value of the net incremental benefits associated with installing REFCLs, with different assumptions on powerline replacement (2015 dollars) 87 Estimated net incremental benefits of the scenarios to enhance network protection for polyphase powerlines with all lightning arresters replaced 87 Estimated present value of costs for installing new generation SWER ACRs 90 Estimated net benefits associated with installing new generation SWER ACRs 91 Sensitivity analysis of net benefits from installing new generation SWER ACRs (2015 dollars) 92 Sensitivity analysis of net benefits from installing new generation SWER ACRs (2015 dollars) 92 Estimated unit cost of putting powerlines underground or insulating conductors 94 Table 34 Length of powerlines to be replaced 94 Table 35 Estimated unit cost of bare wire powerlines 95 Table 36 Table 37 Table 38 Table 39 Estimated present value of costs for putting powerlines underground and insulating conductors 96 Undiscounted cost for putting powerlines underground and insulating conductors 96 Estimated present value of benefits associated with an improvement in bushfire risk for putting powerlines underground and insulating conductors 97 Estimated present value of benefits associated with a reduction in the minutes off supply and a reduction in the number of momentary interruptions by putting powerlines underground and insulating conductors 100 vi

8 Table 40 Table 41 Table 42 Table 43 Table 44 Table 45 Table 46 Table 47 A C I L A L L E N C O N S U L T I N G Estimated present value of the net benefits by putting powerlines underground and insulating conductors 101 Estimated incremental cost (undiscounted) for a one per cent reduction in the state s bushfire loss consequence 102 Estimated present value of the net benefits (reliability benefits only), by electricity distribution area 103 Reduction in minutes off supply required so that the present value of the net benefits (reliability benefits only) is breakeven, by electricity distribution area 103 Estimated maximum impact of the proposed regulation on customers annual electricity bills (2015 dollars) 105 Estimated maximum impact of the proposed regulation on customers annual electricity bills (2015 dollars) 107 Estimated reduction in statewide bushfire risk and cost of reduction in risk 108 Estimated maximum impact of the proposed regulation on customers annual electricity bills (2015 dollars) 109 Table 48 Evaluation audiences 115 Table 49 Evaluation strategy summary 116 Table 50 List of consultations 117 Table 51 List of consultations 118 Table D1 Feeders to be replaced under option 3 D-1 vi i

9 Executive summary Origins of initiative On Saturday 7 February 2009 ( Black Saturday ), Victoria experienced the most devastating bushfires in its history resulting in a catastrophic loss of life as well as public and private property. The Victorian Bushfires Royal Commission (Royal Commission) was established to inquire into and report on the causes and circumstances of the fires. It recommended the replacement of powerlines by putting them underground, insulating overhead powerlines or by using technology that greatly reduces the bushfire risk: In September 2010 the Powerline Bushfire Safety Taskforce ( the Taskforce ) was formed to investigate the optimal way of implementing these recommendations. The Taskforce presented its report to the Government in September The Taskforce recommended that the risk of powerlines starting bushfires could be reduced by: installing new technology that greatly reduces bushfire risk, that is, by installing: Rapid Earth Fault Current Limiters (REFCLs) at specific points in the network to reduce the risk of polyphase powerlines starting fires (by automatically reducing the current in some types of powerline faults, and so reduce the risk of the fault starting a fire) new generation Automatic Circuit Reclosers (ACRs) on Single Wire Earth Return (SWER) lines to reduce the risk of SWER lines starting fires (by enabling the devices to be set remotely so that they turn off those powerlines quickly when faults occur) putting powerlines underground or insulating conductors in the areas of highest bushfire risk. In December 2011 the Government accepted the Taskforce s recommendations and committed to a $750 million Powerline Bushfire Safety Program (PBSP). The program comprises $250 million in government funding, as well as regulatory initiatives with estimated economic costs of $500 million. The $500 million (real, 2011) of regulatory initiatives reflects the Taskforce s estimate of the economic costs of implementing its recommendation. Proposed regulations The implementation of the Taskforce s recommendation is now the subject of proposed amendments to the Electricity Safety (Bushfire Mitigation) Regulations The Taskforce s Final Report noted that new information was expected to be available in the future, and so recommended that its findings be subject to review to ensure that the measures recommended were still cost-effective. Since 2011, testing of new technology and new analysis reviewing the potential costs and benefits of implementing the Taskforce s recommendation have been undertaken. This Regulatory Impact Statement (RIS) incorporates this new information in its analysis. The proposed regulations will implement the Taskforce s recommendations by requiring that electricity distributors install REFCLs at specific points in the network, install ACRs on REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT viii

10 SWER lines, and replace powerlines in the highest bushfire risk areas, where it is assumed that electricity distributors will not do so voluntarily on a timely basis. The electricity distributors that will be most significantly impacted by the proposed regulations are AusNet Services and Powercor, with a relatively small impact on Jemena. The costs of the proposed regulations will fall upon the customers of those electricity distributors. Why are these regulations required? It is assumed that, in the absence of the proposed regulations, the Taskforce s recommendations will not be implemented on a timely basis under the economic and safety regulatory regime that applies to the Victorian electricity distributors, due to market and regulatory failures. The electricity distributors have committed in their Bushfire Mitigation Plans to install a couple of trial REFCLs during the regulatory control period. Energy Safe Victoria, in its role as the safety regulator, has accepted these plans based on its understanding of the current best practice approach to energy safety and their understanding of the relevant risks. In the absence of the proposed regulations, it is assumed that the electricity distributors would commence installing additional REFCLs in 2022, two years after a revenue determination for the regulatory control year period is made in around October 2020, and when they are satisfied that their trials have demonstrated that the technology is proven. It is further assumed that the rural electricity distributors would install one every two years, so that as the installation of one REFCL is completed, the installation of another REFCL commences. It is assumed that, in the absence of regulations, Powercor would not install SWER ACRs in its lower consequence bushfire risk areas, and that the electricity distributors would not voluntarily put powerlines in the most dangerous areas of the state underground or insulate them. This is because the private incentives to do so are weak. Although these measures would reduce the likelihood of a bushfire, the electricity distributors may bear only a small proportion of the costs of major bushfires started by their assets, and so do not face a strong private incentive to change. Even if there were sufficient private incentives, the revenue determined for the electricity distributors under the current regulatory regime may not include the costs associated with actions to reduce the likelihood of powerlines starting bushfires, in the absence of a regulatory obligation. In the absence of a regulatory obligation, the costs would only be included in the electricity distributor s revenue if it was determined by the economic regulator that there was a net benefit to the electricity distributor (and thereby its customers). In theory, this could be offset by the threat of legal action if an electricity distributor is liable for damages caused by a fire started by their assets. However, the threat of legal action is weak. For example, when sued following the Black Saturday bushfires, the electricity distributors settled out of court. It is expected that the cost of settlement will either be passed on to customers under the current regulatory framework or that it will be covered by insurance (with any resulting increase in insurance premiums passed on to customers). For these reasons, it is assumed that the proposed regulations are required to implement the Taskforce s recommendations. REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT ix

11 Objective of the proposed regulations The objective of the proposed amendments to the regulations is to reduce the likelihood that electricity distribution powerlines start bushfires. The objective is to reduce the likelihood of powerlines starting bushfires relative to the current likelihood, as regulated by the Electricity Safety Act 1998 and the associated Electricity Safety (Bushfire Mitigation) Regulations Achieving this objective will reduce the incidence of bushfire ignition and the associated costs to the community. Options to achieve the objective Based on a preliminary assessment of a wide range options, the following options were short listed and assessed in detail in this Regulatory Impact Statement: Option 1: Enhance the network protection for polyphase powerlines Option 1a: Amend the Electricity Safety (Bushfire Mitigation) Regulations 2013 regulations to require that an electricity distributor s bushfire mitigation plan s operation and maintenance plans set out how it would, within three years, enhance the network protection for polyphase powerlines to reduce the likelihood of a bushfire starting when a phase to earth fault occurs on a polyphase powerline in the highest consequence bushfire risk area. For the purposes of this option, the highest consequence bushfire risk area is the 15 zone substations listed in Appendix B.1. Option 1b: As per option 1a, but with the highest consequence bushfire risk area defined as the 32 zone substations listed in Appendix B.2 and action to be taken within five years. Option 1c: As per option 1a, but with the highest consequence bushfire risk area defined as the 45 zone substations listed in Appendix B.3 and action to be taken within seven years. Option 2: Enhance the network protection for SWER powerlines Amend the Electricity Safety (Bushfire Mitigation) Regulations 2013 to require that an electricity distributor s bushfire mitigation plan s operation and maintenance plans set out how it would, within five years, enhance the network protection for SWER powerlines to reduce the likelihood of a bushfire starting when faults occur on those SWER powerlines. Option 3: Powerlines in declared areas to be put underground or insulated Option 3a: Amend the Electricity Safety (Bushfire Mitigation) Regulations 2013 to require that an electricity distributor s bushfire mitigation plan sets out how powerlines in declared areas would, within seven years, be put underground or insulated. Option 3b: Amend the Electricity Safety (Bushfire Mitigation) Regulations 2013 to require that an electricity distributor s bushfire mitigation plan sets out how powerlines that are replaced in declared areas would be put underground or insulated. Enhancing network protection for polyphase powerlines (option 1) The network protection for a polyphase powerline can be enhanced by installing a REFCL at the zone substation (ZSS) that supplies the polyphase powerline. REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT x

12 The net incremental benefits associated with the three sub options identified for enhancing network protection for polyphase powerlines were estimated by considering, the present value of: the direct costs associated with installing REFCLs at the ZSSs and the ancillary equipment required the avoided cost by installing REFCLs, and replacing ancillary equipment, earlier than would otherwise occur additional maintenance costs due to the installation of the REFCL additional costs incurred by customers that are directly connected to the electricity network administrative and compliance costs the benefits associated with an improvement in the bushfire risk the benefits associated with an improvement in the reliability of supply. The costs and benefits were modelled over a 40 year period with a discount rate of 4.0 per cent. The estimated net incremental benefits of each scenario are provided in Figure ES1. Each of the three scenarios has a net incremental benefit (in net present value terms), with the net incremental benefit increasing as the number of REFCLs installed increases. The benefit cost ratio is significantly greater than one for all options, ranging from 2.7 for option 1c to 3.0 for option 1b. Figure ES1 Estimated net incremental benefits of the scenarios to enhance network protection for polyphase powerlines $ $ (NPV, in $ million) $ $ $ $50.00 $- Option 1a Option 1b Option 1c Net incremental benefit Source: ACIL Allen The reduction in the state-wide bushfire risk increases as the number of REFCLs installed increases. That is, the reduction in state-wide bushfire risk is greater under option 1b than under option 1a, and greater under option 1c than under option 1b. The recommended option is to amend the Electricity Safety (Bushfire Mitigation) Regulations 2013 regulations to require that an electricity distributor s bushfire mitigation plan s operation and maintenance plans set out how it would, within seven years, enhance the network protection for polyphase powerlines to reduce the likelihood of a bushfire starting when a phase to earth fault occurs on a polyphase powerline in the area supplied by the 45 ZSSs listed in Appendix B.3 (option 1c). REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT xi

13 There is a net benefit associated with this option and the reduction in the state-wide bushfire risk is the greatest of the three options considered. Enhancing network protection for SWER powerlines (option 2) The network protection for SWER powerlines can be enhanced by installing new generation SWER ACRs. The two rural electricity distributors have SWER powerlines in their electricity distribution areas. While one of these electricity distributors (AusNet Services) has installed new generation SWER ACRs on its SWER powerlines, the other electricity distributor (Powercor) has not installed them in the lower consequence bushfire risk areas. The net benefits associated with installing SWER ACRs in the remaining areas of Powercor s electricity distribution network were estimated by considering the present value of: the direct cost of installing 1,064 new generation SWER ACRs the avoided cost by replacing protection devices earlier than would otherwise occur the avoided cost of manually resetting protection devices on SWER powerlines on fire ban days administrative and compliance costs the benefits associated with an improvement in the bushfire risk. The costs and benefits were modelled over a 20 year period with a discount rate of 4.0 per cent. The net benefit and benefit cost ratio associated with the proposed regulations to install new generation SWER ACRs on SWER powerlines is set out in Table ES1. Table ES1 Estimated net benefit associated with installing new generation SWER ACRs Present value of benefits 22,243,959 Present value of net costs 27,209, dollars Benefit cost ratio Present value of net benefit -4,965, Source: ACIL Allen The present value of net benefits has been estimated assuming that the average annual bushfire cost is $80 million. The Royal Commission identified that the risks associated with bushfire are likely to increase with the impact of climate change. If the average annual bushfire cost increases to $97.9 million with the impact of climate change, there is no net cost associated with installing new generation SWER ACRs on SWER powerlines. On balance, given: the potential for each of the new generation SWER ACRs to avoid a single major one in 25 year bushfire, which could cost at least $300 million the potential for the average annual bushfire cost (around $80 million) to increase with the impact of climate change, which would increase the benefits associated with installing new generation SWER ACRs the relatively low unit cost of a new generation SWER ACR ($50,000 each) the modest cost to Powercor s consumers, REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT xii

14 the preferred option is to amend the regulations to enhance network protection on SWER powerlines, rather than not to require them or to limit their installation to specific ZSSs. It is therefore recommended that the Electricity Safety (Bushfire Mitigation) Regulations 2013 be amended to require that an electricity distributor s bushfire mitigation plan s operation and maintenance plans set out how it would, within five years, enhance the network protection for SWER powerlines to reduce the likelihood of a bushfire starting when faults occur on those SWER powerlines. Powerlines in declared areas to be put underground or insulated (option 3) The net benefits associated with the proposed regulations to require that powerlines in declared areas be put underground or insulated were estimated by considering the present value of: the direct cost of putting powerlines underground or insulating conductors, in declared areas the direct cost for reconnecting customers to powerlines that are replaced the avoided cost by replacing powerlines earlier than would otherwise occur administrative and compliance costs the benefits associated with an improvement in the bushfire risk the benefits associated with an improvement in the reliability of supply. The costs and benefits were modelled for a range of scenarios over a 50 year period with a discount rate of 4.0 per cent. The scenarios modelled considered replacement within seven years (option 3a) or at the end of their existing life (option 3b). As the end of life was unknown, it was assumed that, on average, powerlines would be replaced in 25 years (option 3b). Each of these options was modelled based on the low end of costs and the high end of costs. The low end of costs assumed conductors would be insulated with the current technology (aerial bundled conductor or ABC) prior to 2020 and with new technology (carbon core conductor) from The high end of costs assumed that powerlines would be put underground or conductors would be insulated with the current technology. The net benefits associated with the scenarios for replacing powerlines in a declared area are set out in Figure ES2. REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT xiii

15 Figure ES2 Estimated net benefits associated with replacing powerlines within a declared area 100,000,000 Replacement by low cost Replacement by high cost End of life replacement - low cost End of life replacement - high cost 0-100,000,000 Net benefit (NPV, $2015) -200,000, ,000, ,000, ,000, ,000,000 Source: ACIL Allen Figure ES2 indicates that there is a net benefit and a benefits cost ratio greater than one to replace powerlines at the end of their life with the new technology (covered carbon core conductor). There is a net cost and a benefit cost ratio less than one for the other scenarios considered for putting powerlines underground or insulating conductors in declared areas (accelerated replacement by 2023 and replacement at the end of life with existing technologies). On balance, the preferred option is to amend the regulations to require powerlines in declared areas to be insulated when they are replaced. It is currently estimated that there is a net benefit to do so using new technology, which is likely to be available when powerlines need to be replaced, and the impact on electricity customers retail electricity bills is reasonable. It is considered prudent to proceed with this option given that it targets only the most dangerous areas of the state, results in a substantial reduction in the state s bushfire risk, and potentially avoids the very significant cost associated with a single major one in 25 year bushfire (at least $300 million). It is therefore recommended that the Electricity Safety (Bushfire Mitigation) Regulations 2013 be amended to require that an electricity distributor s bushfire mitigation plan sets out how powerlines in declared areas would be put underground or insulated when they are replaced. Summary of costs Based on the net present value over the life of the assets, the costs, benefits and net benefits of the method of installation that yields the highest net benefit (or lowest net cost) for each of the three options are summarised in Table ES2. REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT xiv

16 Table ES2 Costs, benefits and net benefits of the three options, net present value over the life of the assets, 2015 dollars Install REFCLs (option 1c) Install SWER ACRs (option 2) Low cost Replace powerlines (option 3b) High cost Costs $151 million $27 million $25 million $191 million Benefits $411 million $22 million $49 million $50 million Net benefits $260 million -$5 million $23 million -$141 million Note: Low cost powerline replacement option replace with new technology; High cost powerline replacement option replace with existing technology. Numbers may not add due to rounding. The cost of implementing these recommendations in total is therefore estimated to be between $203 million and $369 million (in present value terms). If the regulations are amended, the costs incurred by the electricity distributors in meeting the regulations would be passed through to their customers in the form of increased distribution charges, which would increase retail electricity bills. The total undiscounted costs associated with the recommended options for installing REFCLs, new generation SWER ACRs and replacing powerlines, by electricity distributor, are set out in Table ES3. Table ES3 also provides the estimated worst case maximum annual impact on a typical residential and small business customers electricity bills, assuming that the costs are recovered through the variable component of the distribution charge, which is then reflected in the variable component of the retail charge. The worst case maximum impact is estimated to be up to 1.0 per cent for customers in AusNet Services area ($22-$30 for a household consuming 5,000kWh per annum and $ for a small business consuming 25,000kWh per annum) and up to 0.5 per cent for customers in Powercor s area ($14-$17 for a household and $72-$87 for a small business). The impact on customers in Jemena s area is negligible ($0.22 for a household and $1.08 for a small business) and there is no impact for customers in CitiPower s and United Energy s areas. Table ES3 Undiscounted costs and maximum incremental impact on retail electricity bills associated with recommended options 1c, 2 and 3b Install REFCLs (option 1c) Undiscounted cost Install SWER ACRs (option 2) Replace powerlines (option 3b) Maximum incremental impact on retail electricity tariff 2015 dollars 2015 dollars 2015 dollars cents per kwh AusNet Services $140.0 million $222.7 million Powercor $154.5 million $53.2 million $185.1 million Jemena $2.2 million 0.00 Total $296.7 million $53.2 million $407.8 million Note: Calculation of maximum incremental impact on tariff: WACC assumed to 6.0% (pre tax real); electricity delivered by the electricity distributors for is from their regulatory proposals; electricity delivered is assumed to grow from with the same compound annual growth rate as from ; the maximum estimated bill impact has been calculated on the basis of REFCL, SWER ACR and powerline costs only; the avoided costs and other benefits have not been deducted; the low end of the range is the installation of REFCLs and SWER ACRs; the high end of the range is the insulation of conductors at the end of their life, which is assumed to occur over a 7 year period around 2040 when the costs associated with the REFCLs and SWER ACRs have been substantially depreciated; the retail electricity tariff is in the order of 30 cents per kwh. Source: ACIL Allen The impact on competition of these price increases will be marginal, as the worst case maximum increase is modest and electricity costs tend to be a small proportion of a REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT xv

17 business s input costs. Energy intensive industries are generally directly connected to the transmission network and therefore do not pay distribution charges. REGULATORY IMPACT STATEMENT BUSHFIRE MITIGATION REGULATIONS AMENDMENT xvi

18 1 Introduction On Saturday 7 February 2009 ( Black Saturday ), Victoria experienced the most devastating bushfires in its history resulting in a catastrophic loss of life as well as public and private property. The 2009 Victorian Bushfires Royal Commission was established on 16 February 2009 to 1 : inquire into and report on the causes and circumstances of the fires that burned in January-February 2009, the preparation and planning before the fires, all aspects of the response to the fires, measures taken by utilities, and any other matter it considered appropriate. The Royal Commission made 67 recommendations, of which eight related to reducing the likelihood of powerlines starting catastrophic bushfires. Of relevance to this Regulatory Impact Statement, the Royal Commission recommended the replacement of powerlines by putting them underground, insulating overhead powerlines or by using technology that greatly reduces the bushfire risk (recommendation 27) 2 : Recommendation 27: progressive replacement of 22kV and SWER powerlines The State amend the Regulations under Victoria s Electricity Safety Act 1998 and otherwise take such steps as may be required to give effect to the following: the progressive replacement of all SWER (single-wire earth return) power lines in Victoria with aerial bundled cable, underground cabling or other technology that delivers greatly reduced bushfire risk. The replacement program should be completed in the areas of highest bushfire risk within 10 years and should continue in areas of lower bushfire risk as the lines reach the end of their engineering lives the progressive replacement of all 22-kilovolt distribution feeders with aerial bundled cable, underground cabling or other technology that delivers greatly reduced bushfire risk as the feeders reach the end of their engineering lives. Priority should be given to distribution feeders in the areas of highest bushfire risk. The Royal Commission acknowledged the technical complexity of two of its recommendations, and consequently suggested that an expert taskforce be formed to investigate further the optimal way of implementing these recommendations. In September 2010 the Powerline Bushfire Safety Taskforce ( the Taskforce ) was formed, with representation from the electricity distributors, and experts in powerline and bushfire risk. The Taskforce presented its report to the Government in September The Taskforce found that: the consequence of starting a bushfire varies across the state, and is determined by population exposure based on expected bushfire behaviour electrical arcs (caused by faults) can, in worst weather conditions, start a bushfire in milliseconds different types of electrical faults require different technological approaches Victorian Bushfires Royal Commission, Final Report: Summary, July 2010, page Victorian Bushfires Royal Commission, Final Report: Summary, July 2010, page 29 1

19 new generation Automatic Circuit Reclosers (ACRs) are the most cost-effective means of treating risk on Single Wire Earth Return (SWER) lines and lessen likelihood of ignition by 50 per cent Rapid Earth Fault Current Limiters (REFCLs) are the most cost-effective means of treating risk on polyphase lines and lessen likelihood of ignition by 70 per cent powerline replacement (with insulated or underground cable) lessens likelihood of ignition by up to 99 per cent but is the most expensive option of those considered. The Taskforce recommended 3 : Recommendation 1 Electricity distributors implement the 2009 Victorian Bushfires Royal Commission s recommendation 27 by: (a) installing new generation protection devices to instantaneously detect and turn off power at a fault on high fire risk days: on SWER powerlines in the next five years (new generation SWER ACRs) on 22kV powerlines 4 in the next 10 years (Rapid Earth Fault Current Limiters) (b) targeted replacement of SWER and 22kV powerlines 5 with underground or insulated overhead cable, or conversion of SWER to multi-wire powerlines, in the next 10 years to the level of between $500 million and $3 billion, consistent with the package of measures selected by the Victorian Government. These should be implemented in the highest fire loss consequence areas first. Any new powerlines that are built in the areas targeted for powerline replacement should also be built with underground or insulated overhead cable. The Taskforce presented government with options of increasing cost within a notional cost envelope of $500 million to $3 billion. Reflecting the relative cost-effectiveness of new generation SWER ACRs and REFCLs, the Taskforce recommended that these technologies be deployed as a first priority. To the extent government believed there was merit in additional risk reduction, it could then fund that quantum of powerline replacement it believed was justified. In December 2011 the Government accepted the Taskforce s recommendations and committed to a $750 million Powerline Bushfire Safety Program (PBSP). The program comprises $250 million in government funding, as well as regulatory initiatives with estimated economic costs of $500 million. The $250 million in government funding (nominal) is allocated to the following initiatives: $200 million for the Powerline Replacement Fund (PRF) $40 million for backup electricity generators for people critically dependent on electricity supply $10 million for research and development with a focus on those areas of uncertainty identified by the Taskforce. The $500 million (real, 2011) of regulatory initiatives reflects the Taskforce s estimate of the economic costs of installing the following items: new generation SWER ACRs REFCLs 3 Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page 94 4 Includes high voltage polyphase powerlines operating at different voltage levels 5 Includes high voltage polyphase powerlines operating at different voltage levels 2

20 heightened powerline construction standards in targeted areas. A C I L A L L E N C O N S U L T I N G These items are now the subject of proposed amendments to the Electricity Safety (Bushfire Mitigation) Regulations Chapter 2 of this Regulatory Impact Statement (RIS) provides background information, including information on the electricity distribution system, how powerlines may start bushfires, technology options to reduce the likelihood that powerlines start bushfires, and the economic and safety regulatory regime that applies to the electricity distributors. Chapter 3 sets out the nature and extent of the problem that the proposed regulations are designed to address, and considers the likelihood that electricity distribution powerlines may start bushfires and the technology options available to reduce the likelihood, the costs associated with bushfires, the market and regulatory failures that affect the likelihood that electricity distributors will take action to reduce the bushfire risk from powerlines, and the reduction in public risk if the likelihood that powerlines start bushfires is reduced. Chapter 4 describes the objective of the proposed regulations, which is to reduce the likelihood that electricity distribution powerlines start bushfires. Chapter 5 identifies a range of options to achieve the objective of the proposed regulations. A preliminary assessment is undertaken of these options to shortlist those that are subject to more detailed assessment in Chapter 6. The preferred options to meet the objective of the proposed regulations, drawing on the detailed assessment, are discussed in Chapter 7. An implementation plan is included in Chapter 8 and an evaluation strategy is provided in Chapter 9. The stakeholders that have been consulted in the development of this RIS are listed in Chapter 10. 3

21 2 Background This chapter provides background information, which is relevant to this RIS, on: the electricity distribution system, in section 2.1 the causes of powerline faults, in section 2.2 the way in which powerlines may start bushfires, in section 2.3 the variation across the state in the consequences of bushfires, in section 2.4 the measures that have been taken since Black Saturday to reduce the likelihood that powerlines start bushfires, in section 2.5 technology options that could further reduce the likelihood that powerlines start bushfires, in section 2.6 the approaches to bushfire risk reduction, in section 2.7 the safety and economic regulatory regime that applies to the electricity distributors, in section Electricity distribution system Electricity supply system The privatised Victorian electricity supply system consists of four elements: Generation electricity is predominantly generated in Victoria from brown coal, but also natural gas, hydro, and wind. There are a number of generators that sell the electricity generated in a competitive market. Transmission electricity is transmitted at high voltages on tall steel lattice towers from the major points of generation to major load centres. There is one transmission business that owns and operates most of the transmission lines in Victoria. Distribution electricity is transformed to lower voltages for distribution, generally through the poles and wires network, to business and residential customers. Five electricity distributors distribute electricity in Victoria each one has a defined electricity distribution area. Retail electricity is sold to customers by the retailer. The transmission network is more critical than the distribution network a smaller network of lines supplies a much greater number of customers. An interruption on the transmission network has the potential to impact far more customers than an interruption on a distribution powerline. The design, operation and maintenance of transmission powerlines is commensurate with the criticality of those powerlines. As a result, the number of bushfires started by transmission lines is less significant on a per kilometre basis (and in total) compared to distribution lines. The distribution network rather than the transmission network is therefore the subject of this RIS. The distribution system comprises the following types of powerlines: 4

22 Sub-transmission lines powerlines that carry large amounts of power. They are run at a very high nominal voltage of 66 kilovolts (kv) to reduce electrical energy losses. Polyphase distribution lines powerlines that carry small to medium amounts of power and are the backbone of the distribution network. The majority run at a high nominal voltage of 6.6kV, 11kV or 22kV and use multiple wires, as illustrated in Figure 1. Distribution lines supply power to distribution substations (pole mounted transformers) that supply individual premises and local low voltage lines serving multiple premises. A single distribution line can supply multiple small rural towns and surrounding areas. Single wire earth return (SWER) lines a high voltage distribution powerline that carries comparatively small amounts of power over longer distances than low voltage systems can cover, to supply sparsely populated areas. They are run at a nominal voltage of 12.7kV and use a single wire, as illustrated in Figure 1. The electrical current returns through the ground rather than through a separate wire as occurs in polyphase distribution lines. As a SWER system uses only a single wire, it is very simple, requires less material, and is cheaper to construct and maintain than polyphase distribution lines. Low voltage lines the low voltage powerlines carry small amounts of power to supply electricity customers over short distances, typically no longer than 1 km and often supply only one or two houses. They run at 240 or 415 volts. Figure 1 Examples of polyphase distribution powerline (on the left) and SWER line (on the right) Source: Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, Figure 2 5

23 Following the 2009 Black Saturday bushfires, the polyphase and SWER powerlines in rural areas were the focus of the recommendations by the Victorian Bushfires Royal Commission. Electricity distribution businesses There are five electricity distributors that own and operate the electricity distribution networks in Victoria, each with a defined area as illustrated in Figure 2. Two electricity distributors own and operate most of the rural powerlines Powercor in the west of the state and AusNet Services in the east. Jemena and United Energy own and operate a relatively small number of rural powerlines on the outskirts of Melbourne and on the Mornington Peninsula. CitiPower, which owns and operates the powerlines in the Melbourne CBD and inner suburbs, does not own or operate any rural powerlines. Figure 2 Electricity distribution areas Note: This map is based on postcode boundaries and, as such, does not provide a precise reflection of the various distribution areas. It should only be used to provide a general indication of the distribution regions. Source: ACIL Allen The length of polyphase powerlines and SWER lines in Victoria by electricity distributor (except CitiPower 6 ), is summarised in Table 1. As indicated in this table, 77 per cent of polyphase powerlines and 99 per cent of SWER lines in Victoria (excluding CitiPower s areas) are located in rural areas. 6 CitiPower is not shown as its powerlines are all in urban areas. 6

24 Table 1 Electricity distributor A C I L A L L E N C O N S U L T I N G Length of polyphase powerlines and SWER lines in Victoria (excluding CitiPower s area) as at September 2011 Length of polyphase distribution lines (km) Length of SWER lines (km) Total Rural Total Rural Jemena 2, Powercor 33,971 26,691 21,778 21,547 AusNet Services 25,335 21,779 6,469 6,457 United Energy 3,571 1, Total 65,059 50,101 28,303 28,060 Source: Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, Table Powerline faults Faults on powerlines may occur due to 7 : the external environment, particularly trees, tree branches, birds, animals or vegetation making contact with powerlines; wind causing powerlines to move into each other or other objects; lightning hitting powerlines; and heat causing powerlines to sag and touch structures below them or reach the ground the failure of powerlines, that is, breakage of wires, poles, cross-arms, insulators or any of the many other components that make up a typical powerline. Of the fires thought to have been started by powerlines on Total Fire Ban days in Powercor s and AusNet Services areas in 2008 and : the majority of bushfires (approximately 80 per cent) were started by the poles and wires, with a smaller proportion started by the auxiliary equipment mounted on the poles of these, 33 per cent were due to the external environment, 53 per cent were due to the failure of powerlines and 14 per cent were not clearly attributable to the external environment or the failure of powerlines of the bushfires started by the poles and wires, the majority were started by polyphase, rather than SWER, lines approximately 1.6 fires were started for each 1,000km of polyphase lines and 0.3 fires were started for each 1,000km of SWER lines. A powerline fault can result in a wire (phase) to earth fault or a wire to wire (phase to phase) fault. A SWER line has only a single wire and therefore a fault on a SWER line can only result in a wire (phase) to earth fault; not a wire to wire (phase to phase) fault. Approximately 70 per cent of fires are started by phase to earth faults and 30 per cent are started by phase to phase faults. 2.3 Powerlines may start bushfires When a powerline fault occurs, sufficient energy can be released into the environment to very quickly start a bushfire under worst-case conditions. On most days, the moisture content of vegetation and other combustible material near a powerline is high and there is a low likelihood of ignition. However, on days of Total Fire Ban, and 7 Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page 38 8 Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page 40 7

25 particularly on Code Red days, vegetation and other combustible material has a very low moisture content that greatly increases the likelihood of ignition. Bushfires can be started by powerlines by: an electric arc igniting surrounding vegetation or other combustible material, for example if a line falls to the ground (a phase to earth fault) hot molten metal particles released when two live parts of powerlines make physical contact (a phase to phase fault), for example in wire clashing incidents, igniting dry materials on which they fall an electric current that flows through vegetation, animal or other material, causing ignition, when they contact live parts of the network (either between two different live parts or between one live part and the ground). 9 With low vegetation moisture content and little air movement 10 : electric arcs can ignite fuel very quickly, in two to three hundredths of a second for relatively high fault currents and a few tenths of a second for relatively low fault currents, that is, the higher the fault current, the higher the likelihood of a powerline starting a bushfire molten metal particles, which have a high probability of igniting fuel, can be emitted within tenths of a second, but only for high fault currents electric current flows will ignite fuel in the order of tens of seconds to minutes. As molten metal particles have a high probability of igniting fuel, the only effective barrier is to prevent powerlines making physical contact. The electricity distributors install spreaders to prevent lines clashing and molten metal particles being emitted. This RIS is focused on reducing the likelihood of bushfires starting by electric arcs. 2.4 Consequences of bushfires vary across the state The fire loss consequence is the potential impact of a bushfire, in terms of loss of life and property. A particular location is considered to have a high fire loss consequence when a fire starting at that location has the potential for a high loss of property. A particular location is considered to have a low fire loss consequence when a fire starting at that location has the potential for a relatively low loss of property. 11 The consequence of a fire varies significantly by fire start location across the state, as illustrated in Figure 3, with the areas shaded red having a higher fire loss consequence and the areas shaded green having a lower fire loss consequence. 9 Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, pages Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page 44 8

26 Figure 3 Fire loss consequence map The fire loss consequence across the state is a continuum from the point with the highest fire loss consequence to the point with the lowest fire loss consequence. A large proportion of the state s fire loss consequence could be mitigated by targeting actions to a relatively small proportion of powerlines in the highest consequence bushfire risk areas. The proposed regulations are therefore targeted to actions in the consequence bushfire risk areas that are appropriate to the cost of those actions. 2.5 Reducing the likelihood that powerlines start bushfires Following the Black Saturday bushfires, a wide range of measures have been taken to reduce the likelihood that powerlines start bushfires. Examples of the types of measures that have been taken are discussed in this section. A number of changes have been made to the legislative and regulatory regime. These include: making it mandatory for the electricity distributors to prepare, submit and comply with an Electricity Safety Management Scheme increasing penalties if electricity distributors fail to submit a Bushfire Mitigation Plan requiring electricity distributors to comply with an approved Bushfire Mitigation Plan, with penalties for non-compliance explicitly requiring bushfire risks associated with the management of electricity distribution assets to be minimised requiring electricity distributors to prepare their Bushfire Mitigation Plans as part of their Electricity Safety Management Scheme and therefore provide a more comprehensive framework to the risk management approach to bushfire mitigation requiring powerlines to be inspected at least once every three years in hazardous bushfire risk areas and once every five years in other areas 9

27 requiring electricity distributors to periodically inspect overhead private electric lines requiring inspectors to have satisfactorily completed a training course approved by the safety regulator, Energy Safe Victoria extending the power of Energy Safe Victoria to enable it to direct that vegetation be removed or to stop the planting of unsuitable vegetation under or near an electric line increasing the clearance distance required between overhead electric powerlines and trees introducing a financial incentive scheme (the F-factor) to encourage improvements in the management of electricity assets to reduce the number of fires started by electricity assets enhancing Energy Safe Victoria s governance arrangements including a specific objective for Energy Safe Victoria to promote the prevention and mitigation of bushfire danger. The electricity distributors have enhanced their inspection regimes with the use of, for example, high resolution digital photography, aerial photography, rod or boom mounted cameras, and thermal imaging. As required, electricity distributors have been replacing, for example, poles (with concrete poles rather than wood poles, as appropriate), cross arms (with steel cross arms rather than wooden cross arms, as appropriate), and sections of conductor. As an outcome of the Royal Commission, the ESV issued directions to the electricity distributors to prepare plans for the upgrade of assets that had been identified by the Royal Commission as having the potential to cause future bushfires. The two directions issued by ESV were: Installation of armour rods and vibration dampers the direction required electricity distributors to install armour rods and vibration dampers in accordance with the Victorian Electricity Supply Industry (VESI) standards to reduce the likelihood of conductor failure as a result of Aeolian vibration. Installation of low voltage (LV) spreaders the direction required electricity distributors to install LV spreaders in all spans of bare LV conductor in high bushfire risk areas and to fit additional spreaders where required to meet the relevant standards. Following the release of the Taskforce s report, the electricity distributors changed the operation of automatic circuit reclosers (ACRs) to reduce the likelihood of powerlines starting bushfires, by reducing the number of operations on Total Fire Ban and Code Red days. AusNet Services replaced older ACRs with new generation ACRs on all SWER powerlines and Powercor did the same on SWER powerlines in the highest consequence bushfire risk areas. 2.6 Technology options to further reduce the likelihood that powerlines start bushfires There are four technology options that could further reduce the likelihood that powerlines start bushfires: putting more powerlines underground insulating more overhead powerlines installing REFCLs 10

28 installing new generation ACRs on all SWER lines, in particular, on Powercor s network in low consequence bushfire risk areas. The types of powerlines for which these technology options reduce the bushfire risk are summarised below in Table 2. Table 2 also summarises the latest estimate from the CSIRO on the reduction in the likelihood of powerlines starting bushfires with the technology installed. Table 2 Technology option Applicability of technology options to polyphase and SWER lines Reduce bushfire risk on polyphase lines? Reduce bushfire risk on SWER lines? Reduction in likelihood of bushfires Putting powerlines underground Yes Yes 98 99% Insulating overhead powerlines Yes Yes 96 98% Installing REFCLs Yes No 48 60% (for a polyphase powerline) Installing new generation ACRs on SWER lines Source: ACIL Allen No Yes 35 40% Each of these technology options is described in the following sections Putting powerlines underground Undergrounding powerlines reduces the risk of bushfires starting in two ways: it eliminates the risk of wires clashing due to high wind (with emission of molten metal particles) and it reduces the risk of contact between live electricity powerlines and other materials (resulting in electric arcs). Additionally, only phase to earth faults will be experienced with an underground powerline. The Taskforce estimated that the likelihood of powerlines starting bushfires is reduced by around 99 per cent by undergrounding cables. More recent analysis undertaken for the Department by CSIRO indicates that putting powerlines underground reduces the likelihood of powerlines starting bushfires by between 98 and 99 per cent. The main issue with putting powerlines underground is the cost. The cost to put powerlines underground varies significantly across the state based on the terrain, soil conditions and dwelling density. Estimates of the capital costs to put powerlines underground are set out in Table 3. Table 3 Unit capital cost to put powerlines underground Powerline replacement option Source Range of unit capital costs (2015 dollars) Underground SWER lines Taskforce $274,736 $423,702 per km Underground SWER lines Powerline Replacement Fund $256,669 per km Underground polyphase lines Taskforce $284,601 $706,064 per km Underground polyphase lines Powerline Replacement Fund $842,005 per km Source: Taskforce: Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, Table 6, escalated by CPI from March 2011 to March 2015, Powerline Replacement Fund: revealed by the electricity distributors through a competitive process 11

29 2.6.2 Insulating overhead powerlines Replacing bare wire powerlines with insulated overhead powerlines reduces the risk of bushfires starting in two ways: it eliminates the risk of wires clashing due to high wind (with emission of molten metal particles) and it reduces the risk of contact between live electricity powerlines and other materials (resulting in electric arcs). If each wire of the line is shielded, then only wire to earth faults will occur. The Taskforce estimated that the likelihood of powerlines starting bushfires is reduced by between 90 and 99 per cent by insulating overhead powerlines. CSIRO s more recent analysis indicates that insulating overhead powerlines reduces the likelihood of powerlines starting bushfires by between 96 and 98 per cent. As with putting powerlines underground, the capital cost of insulated overhead powerlines varies significantly across the state based on the terrain and dwelling density. Soil conditions have less influence on the costs of insulated overhead wires than on the costs of underground cables. Estimates of the capital costs to insulate overhead powerlines are as set out in Table 4. Table 4 Powerline replacement option Unit capital cost to insulate overhead powerlines Source Range of unit capital costs (2015 dollars) Insulate SWER lines Taskforce $240,892 $388,761 per km Insulate polyphase lines Taskforce $243,109 $374,343 per km Insulate polyphase lines Powerline Replacement Fund $406,350 per km Source: Taskforce: Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, Table 6, escalated by CPI from March 2011 to March 2015, Powerline Replacement Fund: revealed by the electricity distributors through a competitive process Installing new generation REFCLs to protect polyphase lines A new generation REFCL is a relatively recent advance on an old technology 12 that is able to reduce the fault current almost instantaneously when wire to earth faults occur. A REFCL is installed in a zone substation (ZSS) and will reduce the fault current when phase to earth faults occur on polyphase powerlines that are supplied by that ZSS. The REFCL only operates: for phase to earth faults (around 70 per cent of faults on polyphase powerlines) and not phase to phase faults on polyphase powerlines, which comprise 67 per cent of Victoria s rural powerlines by length, and not SWER powerlines. REFCLs have been used in Europe since the early 1990s (albeit in small numbers), mainly on underground cable networks, to improve safety and supply reliability, and have been used in New Zealand since The first Australian REFCL installation was at United Energy s Frankston South ZSS, which was commissioned in The primary purposes of REFCLs have been a reduction in safety risk arising from underground cable faults and overhead conductors falling to the ground, and 12 A REFCL is based on an old technology (Petersen Coil 1916) now using digital power electronics to reach new levels of performance. It is an adjustable inductor installed between the zone substation transformer neutral point and ground which self-adjusts (tunes) to resonate with the total distribution network capacitance at 50Hz so the neutral voltage can float and allow the voltage of any wire anywhere on the network to be set to zero with respect to ground. 12

30 improvements in supply reliability. Fire safety has not been a material concern in Europe and New Zealand, and was not a consideration in the installation of the REFCL at Frankston South. While REFCLs have traditionally not been used to reduce the likelihood of polyphase powerlines starting bushfires, the Taskforce investigated whether REFCLs could be used for this purpose. Building on initial testing by the Taskforce in 2011, the PBSP has conducted a worldfirst test of REFCL technologies at Frankston South (2014) and is currently conducting further testing at Kilmore South (2015). These tests have been undertaken in collaboration with electricity distribution businesses, leading industry experts and original equipment manufacturers. 13 The Frankston South test conclusively demonstrated the capability of REFCL technology to detect and suppress faults on the network which otherwise would lead to bushfires. 14 The precise test results have directly informed the performance standards which are now proposed for inclusion in the Bushfire Mitigation Regulations amendment. The objective of the tests that are currently being undertaken at Kilmore South are to test the comparative performance of a range of REFCL configurations to identify optimal fault detection and suppression capability on a live network. The Taskforce originally estimated that a REFCL would reduce the likelihood of polyphase powerlines starting bushfires by 70 per cent. Recent analysis undertaken for the Department by CSIRO indicates that installing a REFCL reduces the likelihood of bushfires starting by polyphase powerlines supplied by a ZSS by between 48 and 60 per cent. The CSIRO s figure takes into account that: REFCLs only address phase to earth faults, which comprise a subset of total faults on polyphase powerlines REFCLs will prevent at least 90 per cent of ignitions arising from phase to earth faults Installing new generation ACRs on SWER powerlines To reduce the amount of time that people may be without power when faults occur, automatic switches called ACRs are installed to protect powerlines, both polyphase and SWER. An ACR on a polyphase powerline will protect that polyphase powerline; an ACR on SWER line will protect that SWER line. When a fault occurs, the ACR turns off the powerline that is protected by the ACR. After a period of time, the ACR tries to turn the power back on to see whether the problem still exists. Many ACRs on Victoria s electricity distribution system, particularly on SWER powerlines, do not detect low fault currents, have long operating times and cannot be controlled remotely to cost-effectively change settings on high fire risk days to balance the need for customer supply reliability, and bushfire risk. There are also a significant number of boric acid blow-out fuses on the SWER network which, in the event of a fault, shut off power without a capacity to automatically reestablish current flow. In addition to having the same shortcomings as older style 13 Further information on these tests is provided in section The details of these trials are available in reports on the Department s website ( 13

31 SWER ACRs, these fuses, once blown, require a manual visit by a crew to reestablish power. New generation ACRs for SWER powerlines are able to be remotely controlled so that the settings can be cost-effectively changed on high fire risk days. The fault currents detected can be reduced by setting the ACR more sensitively based on the actual load on the powerline on that day, the operating time can be reduced, and the number of times the device turns the powerline on and off when a fault occurs can be limited, that is, the number of reclose attempts can be reduced. For these reasons, the likelihood of a SWER powerline starting a bushfire can be lower with a new generation SWER ACR installed on that powerline, than with the older style of ACR or fuses. 15 In 2013 Energy Safe Victoria commissioned research which determined the optimal settings for ACRs to minimise bushfire risk while maintaining supply reliability. This research concluded that delays in auto-reclosure should be 8 seconds or greater to avoid increased risk of sustained ignition. This figure has directly informed the performance standards proposed for inclusion in the Bushfire Mitigation Regulations amendment. With the installation of new generation ACRs on SWER powerlines and a change in the network reclose function, the Taskforce estimated that the likelihood of SWER powerlines starting bushfires will be reduced by between 10 and 50 per cent, depending on the operation of the network reclose function. More recent analysis undertaken by CSIRO indicates that the installation of new generation ACRs on SWER powerlines, and a change in the network reclose function reduces the likelihood of bushfires starting by those SWER powerlines by between 35 and 40 per cent. 2.7 Approaches to bushfire risk reduction The Taskforce developed a threat-barrier model to illustrate the threats that may result in the ignition of bushfires by powerlines and the barriers that prevent the ignition of bushfires by powerlines. A simplified threat-barrier diagram is shown in Figure 4. Figure 4 Threat-barrier diagram for the ignition of bushfires Source: Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page 49 14

32 Consistent with the earlier discussion on causes of powerline faults, Figure 4 indicates that the threats arise from faults on powerlines caused by the external environment and the failure of powerlines. The sequence of barriers to prevent powerlines starting bushfires are: technology barrier, which prevents the faults through the design of the assets maintenance barrier, which prevents the fault through the maintenance of the assets where the technology barrier does not operations barrier if the fault cannot be prevented, to detect the fault and to reduce the fault energy or turn off powerlines fast enough so that ignition does not occur. For two main reasons, these barriers are less effective on days of higher fire danger: Weather: Powerlines are designed for a maximum loading based on temperature and wind. On a higher fire danger day, the network may be operating at higher stresses due to the combination of very high temperatures, winds and loads. Fuel: Ignition of a fire becomes more likely as fuel dries. Electricity distributors can strengthen precautions that prevent ignition of bushfires by powerlines. Other precautions that will prevent a fire, once ignited, developing into a major bushfire, whether started by powerlines or by other causes, are outside the control of the electricity distributors. 2.8 Regulatory regime that applies to electricity distributors Electricity distributors are natural monopolies due to the high fixed costs of building an electricity distribution network. Each electricity distributor has an electricity distribution area in which it is the sole supplier of electricity, as illustrated in Figure 2. Accordingly, the Victorian electricity distributors are subjected to economic regulation and safety regulation Economic regulation Economic regulation is done nationally by the Australian Energy Regulator (AER). Electricity distribution businesses are subject to economic regulation by the AER in accordance with the National Electricity Law and the National Electricity Rules. The AER is responsible for determining the revenues that electricity distributors can recover from their customers. The AER evaluates the revenue proposals of electricity distributors distribution businesses against the national electricity objective set out in the National Electricity Law, viz. to promote investment in, and efficient operation and use of, electricity services for the long term interests of electricity consumers. The revenues are determined on a five yearly basis through a building block approach. The building blocks comprise: a return on the regulated asset base a return of the regulated asset base (depreciation) operating expenditure the impact of incentive mechanisms corporate tax. 15

33 The economic regulatory regime is an incentive-based framework. The electricity distributors revenues are determined on an ex ante basis (with limited ex post review) based on forecasts. Where the electricity distributors are able to realise efficiency benefits during a regulatory period (the actual costs are less than the forecast costs), they are able to retain the efficiencies for the balance of that regulatory period. The revenue determination may include incentive schemes for operating expenditure and/or capital expenditure so that the efficiency benefits are shared with customers, with the electricity distributors retaining 30 per cent of the benefits and their customers retaining 70 per cent of the benefits. Forecast capital expenditure The return on and of the regulated asset base are influenced by the forecast capital expenditure for the forthcoming regulatory period. The electricity distributors forecast capital expenditure for: augmentations of the network, to meet demand replacement of the network, to ensure that quality, reliability, security and safety of supply are maintained (not improved) connections, to connect new customers meeting any legislative or regulatory obligation non-network capital expenditure, for example, IT expenditure, motor vehicles etc. The AER assesses the forecast capital expenditure on an ex ante basis and must accept the capital expenditure forecast by an electricity distributor where the costs meet the capital expenditure criteria. That is, it accepts the forecast where the costs 16 : are efficient would be incurred by a prudent operator are required to meet a realistic expectation of the demand forecast and cost inputs. On an ex post basis, the AER assesses the efficiency and prudency of the actual capital expenditure. Where that capital expenditure is assessed to be efficient and prudent it is added to the regulatory asset base so that the electricity distributor earns a return on and of the asset for the life of that asset. Where the capital expenditure is assessed to be not efficient or not prudent, the capital expenditure is not added to the regulatory asset base and the electricity distributor is unable to recover the return on and of the asset from its customers. Service-based incentive mechanisms The electricity distributors have an incentive to outperform the revenue determined by the AER by reducing costs and thereby increasing their profits. To balance this incentive, the regime includes provision for various performance incentive schemes that encourage electricity distributors to maintain and improve performance, for example, supply reliability through the Service Target Performance Incentive Scheme and the number of fires started by the electricity distribution system through a fire incentive (or F-factor) scheme. 16 National Electricity Rules, clause 6.5.7(c) 16

34 2.8.2 Safety regulation Safety is regulated by Energy Safe Victoria (ESV) through state-based legislation and regulation. The Electricity Safety Act 1998 (the Act) establishes a process-based regulatory regime, which seeks to ensure that the full range of risks arising from the use of electricity are managed in a systematic way. The risk of powerlines starting bushfires is clearly only one of these categories of risk, albeit a very significant one. The fundamental elements of this framework that apply to electricity distributors include general duties, Electricity Safety Management Schemes and Bushfire Management Plans. The key challenge with the safety regulatory regime is to ensure that the electricity distributors retain responsibility for the safety of their networks. General duties Part 10 of the Act establishes general duties that apply to major electricity companies (MECs), which include electricity distributors. Section 98 states that: A major electricity company must design, construct, operate, maintain and decommission its supply network to minimise as far as practicable (a) (b) (c) the hazards and risks to the safety of any person arising from the supply network; and the hazards and risks of damage to the property of any person arising from the supply network; and the bushfire danger arising from the supply network. The penalties for breaching this provision are 300 penalty units ($45, ) for a natural person and 1,500 penalty units ($227,505) for a body corporate. Electricity Safety Management Schemes Part 10 of the Act also requires MECs to submit an Electricity Safety Management Scheme (ESMS) to the ESV, for its acceptance. An ESMS sets out the safety management system that the MEC has in place to acquit its general duties. A MEC must not operate a supply network unless an ESMS has been accepted (or provisionally accepted) by the ESV, and must comply with the ESMS. Prior to considering whether to accept an ESMS, the ESV may require the ESMS to be validated by an independent party. ESV must accept an ESMS if it is satisfied that the ESMS is appropriate for the supply network to which it applies and complies with the Act and the regulations relating to ESMSs. The ESV may determine an ESMS for a MEC if an ESMS has not been submitted by the MEC or not accepted by the ESV. ESMSs are required to be revised at five yearly intervals and in certain specific circumstances, including when there are significant changes to the management of the system or to the state of technical knowledge that are of relevance to the ESMS. The ESV may request a revised ESMS to be resubmitted at any time. The MEC may make a submission that the revision should not occur, should be in different terms from the proposed terms, or take effect at a later date than the proposed date. The ESV must accept or reject the submission. Bushfire Management Plan 17 As at 1 July

35 Part 10 of the Act, states that an electricity distributor s ESMS must include a plan for the mitigation of bushfire danger in relation to the MEC s supply network. Section 113A of the Act states that the Bushfire Mitigation Plan (BMP) must "include the prescribed particulars". The prescribed particulars, which are set out in the Electricity Safety (Bushfire Mitigation) Regulations 2013, are set out in Appendix A. A MEC must not operate a supply network unless a BMP has been accepted (or provisionally accepted) by the ESV, and must comply with the BMP. Prior to considering whether to accept a BMP, the ESV may require the BMP to be validated by an independent party. ESV must accept a BMP if it is satisfied that the BMP is appropriate for the at-risk electric lines to which it relates. The ESV may determine a BMP for a MEC if an ESMS has not been submitted by the MEC or not accepted by the ESV. The provisions relating to the revision of ESMSs also apply to BMPs. 18

36 3 Nature and extent of the problem This chapter sets out the nature and extent of the problem that the proposed regulations are designed to address, and considers the following: the ignition of bushfires, including the likelihood that electricity distribution powerlines may start bushfires and the technology options available to reduce the likelihood, in section 3.1 the costs associated with bushfires, in section 3.2 the market and regulatory failures that affect the likelihood that electricity distributors will take action to reduce the bushfire risk from powerlines, in section 3.3 the reduction in public risk if the likelihood that powerlines start bushfires is reduced, in section Bushfire ignition This section considers the likelihood that electricity distribution powerlines may start bushfires and the technology options available to reduce the likelihood. Background information on the 2009 Black Saturday bushfires and the relevant recommendation that was made by the Royal Commission are provided in section The key findings and relevant recommendation of the Taskforce are discussed in section The Government s response to the relevant sections of the Taskforce s report, through the establishment of the PBSP, is provided in section The response by the electricity distributors to the recommendations of the Taskforce is provided in section A summary of the key findings of the work undertaken since the 2009 Black Saturday bushfires and the actions remaining are summarised in section The Black Saturday bushfires On Saturday 7 February 2009 ( Black Saturday ), Victoria experienced the most devastating bushfires in its history resulting in a catastrophic loss of life as well as public and private property. The Royal Commission was established on 16 February 2009 to 18 : inquire into and report on the causes and circumstances of the fires that burned in January-February 2009, the preparation and planning before the fires, all aspects of the response to the fires, measures taken by utilities, and any other matter it considered appropriate Victorian Bushfires Royal Commission, Final Report: Summary, July 2010, page 2 19

37 The Royal Commission summarised the impact of the Black Saturday fires as follows 19 : The most serious consequence of the fires was the death of 173 people. Left behind are families, friends and communities still trying to come to terms with their loss. Accompanying this loss of life is the fires impact on property and the infrastructure that supports communities, as well as the substantial environmental impact, which will take years to fully reveal itself let alone be ameliorated. It is extremely difficult to quantify the cost of a disaster like this, but the Commission estimates it to be more than $4 billion. This was one of Australia s worst natural disasters. It will be many years before its effects dim. Governments, fire and emergency services agencies and all individuals can learn valuable lessons from those days, so that we might reduce the risk of such destruction occurring again. It would be a mistake to treat Black Saturday as a one-off event. With populations at the rural-urban interface growing and the impact of climate change, the risks associated with bushfire are likely to increase. Historically, powerlines comprise one of three primary causes of bushfires, the others being arson and natural causes, generally lightning. Fires caused by powerlines are thought to constitute only a small minority of total fires, but appear to be overrepresented in major fire events. Electricity system assets are thought to have started: nine of the 16 major fires on 12 February 1977 four of the eight major fires on Ash Wednesday (16 February 1983) five of the 11 major fires on Black Saturday that were investigated by the Royal Commission 20. The Royal Commission found that 21 : Although the proportion of fires that are caused by electricity infrastructure is low possibly about 1.5 per cent of all ignitions in normal circumstances on days of extreme fire danger the percentage of fires linked to electrical assets rises dramatically. Thus, electricity-caused fires are most likely to occur when the risk of a fire getting out of control and having deadly consequences is greatest. In its July 2010 Final Report, the Royal Commission concluded that 22 : The SWER and 22kV distribution networks constitute a high risk for bushfire ignition, along with other risks posed by the ageing of parts of the networks and the particular limitations of SWER lines. The Royal Commission made 67 recommendations, of which eight relate to reducing the likelihood of powerlines starting catastrophic bushfires. Of relevance to this RIS, the Royal Commission recommended the replacement of powerlines by putting them underground, insulating overhead powerlines or by using technology that greatly reduces the bushfire risk 23 : Recommendation 27: progressive replacement of 22kV and SWER powerlines The State amend the Regulations under Victoria s Electricity Safety Act 1998 and otherwise take such steps as may be required to give effect to the following: the progressive replacement of all SWER (single-wire earth return) power lines in Victoria with aerial bundled cable, underground cabling or other technology that delivers greatly reduced bushfire risk. The replacement program should be Victorian Bushfires Royal Commission, Final Report: Summary, July 2010, page Victorian Bushfires Royal Commission, Final Report: Summary, July 2010, page 12. While the Royal Commission did not attribute the cause of the Murrindindi bushfire to electricity system assets, in a subsequent class action, the State of Victoria argued that AusNet Services assets were responsible for this fire, which caused 40 deaths. The Murrindindi matter was settled out of court on 6 February 2015 for $300 million Victorian Bushfires Royal Commission, Final Report: Volume 1: The Fires and the Fire Related Deaths, July 2010, page Victorian Bushfires Royal Commission, Final Report: Volume II, Fire Preparation, Response and Recovery, July 2010, page Victorian Bushfires Royal Commission, Final Report: Summary, July 2010, page 29 20

38 completed in the areas of highest bushfire risk within 10 years and should continue in areas of lower bushfire risk as the lines reach the end of their engineering lives the progressive replacement of all 22-kilovolt distribution feeders with aerial bundled cable, underground cabling or other technology that delivers greatly reduced bushfire risk as the feeders reach the end of their engineering lives. Priority should be given to distribution feeders in the areas of highest bushfire risk. The other seven electricity-related recommendations made by the Royal Commission have already been implemented. The recommendations and actions that have been taken are summarised in Table 5. Table 5 Implementation of the Royal Commission s recommendations Royal Commission recommendation The State (through Energy Safe Victoria) require distribution businesses to change their asset inspection standards and procedures to require that all SWER lines and all 22-kilovolt feeders in areas of high bushfire risk are inspected at least every three years. The State (through Energy Safe Victoria) require distribution businesses to review and modify their current practices, standards and procedures for the training and auditing of asset inspectors to ensure that registered training organisations provide theoretical and practical training for asset inspectors. The State amend the regulatory framework for electricity safety to require that electricity businesses adopt, as part of their management plans, measures to reduce the risks posed by hazard trees that is, trees that are outside the clearance zone but that could come into contact with an electric power line having regard to foreseeable local conditions. Municipal councils include in their municipal fire prevention plans for areas of high bushfire risk provision for the identification of hazard trees and for notifying the responsible entities with a view to having the situation redressed. Action taken Regulation 7(1)(i) of the Electricity Safety (Bushfire Mitigation) Regulations 2013 requires that powerlines in hazardous bushfire risk areas are inspected at least every 37 months, and other powerlines are inspected at least every 61 months. Regulation 7(1)(j) of the Electricity Safety (Bushfire Mitigation) Regulations 2013 requires a distributor s Bushfire Mitigation Plan to include the details of the processes and procedures for ensuring that asset inspectors are competent and have satisfactorily completed a training course approved by Energy Safe Victoria. The Electricity Safety (Electric Line Clearance) Regulations 2010 were amended in 2013 following consideration of the Royal Commission s recommendation. The Bushfire Royal Commission Monitor assessed this recommendation as complete as at 31 July

39 Royal Commission recommendation The State (through Energy Safe Victoria) require distribution businesses to do the following: disable the reclose function on the automatic circuit reclosers on all SWER lines for the six weeks of greatest risk in every fire season adjust the reclose function on the automatic circuit reclosers on all 22-kilovolt feeders on all total fire ban days to permit only one reclose attempt before lockout. The State (through Energy Safe Victoria) require distribution businesses to do the following: fit spreaders to any lines with a history of clashing or the potential to do so fit or retrofit all spans that are more than 300 metres long with vibration dampers as soon as reasonably practicable. The State amend the regulatory framework for electricity safety to strengthen Energy Safe Victoria s mandate in relation to the prevention and mitigation of electricity-caused bushfires and to require it to fulfil that mandate. Action taken This recommendation was considered by the Powerline Bushfire Safety Taskforce which recommended that: the reclose function on automatic circuit reclosers in the worst bushfire risk areas be adjusted to two fast protection operations on Total Fire Ban days and one fast protection operation on Code Red days the reclose function on automatic circuit reclosers in the remaining rural areas be adjusted to one fast and one slow protection operation on Total Fire Ban and Code Red days until older style SWER automatic circuit reclosers are replaced, they be manually changed in the highest bushfire consequence areas during the worst bushfire period as declared by the Fire Services Commissioner. Electricity distributors are now operating automatic circuit reclosers in accordance with this recommendation. On 4 January 2011, the Director of Energy Safety made two directions one requiring the fitting of armour rods and vibration dampers, and one requiring the fitting of spacers (spreaders) on all spans of bare low voltage conductor in hazardous bushfire risk areas, and that all spans in hazardous bushfire risk areas that do not comply with the required line separation standards be reconstructed or be fitted with spacers. A number of amendments were made to the Electricity Safety Act 1998 in 2010 to strengthen the mandate of Energy Safe Victoria including: adding an objective to promote the prevention and mitigation of bushfire danger 24 adding a function to regulate, monitor and enforce the prevention and mitigation of bushfires that arise out of incidents involving electric lines or electrical installations 25. Source: ACIL Allen based on the Royal Commission s recommendations as set out in its July 2010 Summary Report, pages While these recommendations may contribute to a reduction in the likelihood that a powerline starts a bushfire: There are currently tens of millions of points of potential failure in rural powerlines. The average number of powerline faults in rural areas on a Total Fire Ban day due to the external environment and equipment is currently around 50. The probability that any item of plant fails on a Total Fire Ban day is thus less than per cent. Any increase in maintenance is not expected to have a material impact on this already very low probability. Vegetation causes around 24 per cent of bushfires started by powerlines. While reducing the risks posed by hazard trees will reduce the likelihood that vegetation contact with powerlines will start bushfires, it will have no impact on the other ways in which powerlines start bushfires. 24 Energy Safety Act 1998, section 6(ca) 25 Energy Safety Act 1998, section 7(fa) 22

40 The CSIRO estimated that changing the operation of an ACR on a polyphase powerline will reduce the likelihood of that polyphase powerline starting bushfires by only 9 per cent, while changing the operation of an ACR on a SWER line will reduce the likelihood of that SWER line starting bushfires by 35 to 40 per cent. The installation of spreaders (spacers) will reduce the likelihood of phase to phase faults but not phase to earth faults Powerline Bushfire Safety Taskforce The Royal Commission acknowledged the technical complexity of its Recommendations 27 and 32, and consequently suggested that an expert taskforce be formed to investigate further the optimal way of implementing these recommendations. In September 2010 the Taskforce was formed, with representation from the electricity distributors, and experts in powerline and bushfire risk. The Taskforce presented its report to the Government in September The Taskforce found that: the consequence of starting a bushfire varies across the state, and is determined by population exposure based on expected bushfire behaviour electrical arcs (caused by faults) can, in worst weather conditions, start a bushfire in milliseconds different types of electrical faults require different technological approaches new generation Automatic Circuit Reclosers (ACRs) are the most cost-effective means of treating risk on SWER lines and lessen likelihood of ignition by 50 per cent REFCLs are the most cost-effective means of treating risk on polyphase lines and lessen likelihood of ignition by 70 per cent powerline replacement (with insulated or underground cable) lessens likelihood of ignition up to 99 per cent but is the most expensive option of those considered. The Taskforce recommended 26 : Recommendation 1 Electricity distributors implement the 2009 Victorian Bushfires Royal Commission s recommendation 27 by: (c) installing new generation protection devices to instantaneously detect and turn off power at a fault on high fire risk days: on SWER powerlines in the next five years (new generation SWER ACRs) on 22kV powerlines 27 in the next 10 years (Rapid Earth Fault Current Limiters) (d) targeted replacement of SWER and 22kV powerlines 28 with underground or insulated overhead cable, or conversion of SWER to multi-wire powerlines, in the next 10 years to the level of between $500 million and $3 billion, consistent with the package of measures selected by the Victorian Government. These should be implemented in the highest fire loss consequence areas first. Any new powerlines that are built in the areas targeted for powerline replacement should also be built with underground or insulated overhead cable. 26 Powerline Bushfire Safety Taskforce, Final Report, 30 September 2011, page Includes high voltage polyphase powerlines operating at different voltage levels 28 Includes high voltage polyphase powerlines operating at different voltage levels 23

41 The Taskforce presented government with options of increasing cost within a notional cost envelope of $500 million to $3 billion. Reflecting the relative cost-effectiveness of new generation SWER ACRs and REFCLs, the Taskforce recommended that these technologies be deployed as a first priority. To the extent government believed there was merit in additional risk reduction, it could then fund that quantum of powerline replacement it believed was justified. Table 6 Item Quantifying the Taskforce s recommendation Quantity Taskforce cost estimate ($2011) New generation SWER ACRs 1,300 units $43 million REFCLs 108 units $432 million Powerline replacement Source: Powerline Bushfire Safety Taskforce Varied according to option The Taskforce acknowledged the need for further research and development to improve understanding of bushfire risk and technology capability. This formed the basis for the Taskforce s Recommendations 4 and 5 for $10 million in R&D funding ($2 million per year over 5 years) Powerline Bushfire Safety Program In December 2011 the Government accepted the Taskforce s recommendations and committed to a $750 million PBSP. The program comprises $250 million in government funding, as well as regulatory initiatives with estimated economic costs of $500 million. The $250 million in government funding (nominal) is allocated to the following initiatives: $200 million for the Powerline Replacement Fund (PRF) $40 million for backup electricity generators for people critically dependent on electricity supply $10 million for research and development with a focus on those areas of uncertainty identified by the Taskforce. The $500 million (real, 2011) of regulatory initiatives reflects the Taskforce s estimate of the economic costs of installing the following items cited in Taskforce Recommendation 1: new generation SWER ACRs REFCLs heightened powerline construction standards in targeted areas. These items are now the subject of proposed amendments to the Electricity Safety (Bushfire Mitigation) Regulations Key findings of the PBSP The PBSP has made several findings which build on the findings of the Taskforce, and directly influence the way its recommendations will be implemented: the technical capability and requirements of REFCLs to prevent bushfire ignition are now better understood the bushfire loss consequence of each location in the state is now estimated with a high degree of confidence 24

42 the reduction in likelihood of ignition from a particular technology option has been identified through interrogation of historic fault data the costs of replacing powerlines with different technologies, and in different areas, have been determined through contractual engagement with electricity distributors. These are discussed below. Technical capability and requirements of REFCLs As discussed in section 2.6.3, a REFCL (refer Figure 5) is a relatively recent advance on an old technology that is able to reduce the fault current almost instantaneously when phase to earth faults occur. A REFCL is installed in a ZSS and will reduce the fault current when phase to earth faults occur on polyphase powerlines that are supplied by that ZSS. Figure 5 Example of a REFCL, installed at Kilmore South ZSS, May 2015 Source: Department of Economic Development, Jobs, Transport and Resources In 2013 the PBSP established a REFCL trial to rigorously test REFCL technology on a real network with the following objectives: determine whether REFCL technology is effective in reducing fire starts from electric arcs in powerline faults on a real polyphase 22kV network determine the optimum operational settings for REFCLs to reduce fire starts initiated by electric arcs in powerline faults. The trial aimed to quantify the powerline fire risk reduction benefits of REFCL technology in high fire risk areas of Victoria under worst case fire risk conditions. This includes the relative benefits of different REFCL variants. Following 12 months of planning and preparation, a field test facility was designed and built near Frankston Victoria and a comprehensive research program of 259 tests, including 118 ignition tests under rigorously controlled conditions, was carried out 25